For the last three years I've lived and worked in Japan, returning to America every Christmas for about two weeks. I am a single guy and maintain no residence in America, have the requisite Japanese accounts for everything, am active at my Japanese church, basically fit bona fide residence to a T. For the last three years I have handily passed both the physical presence and bona fide residence tests for getting the Foreign Earned Income Exemption, which saves me quite a bit of money.

This year, I will be changing jobs (next employer also in Japan) and have 4 weeks between them, which I intend to use to travel home and visit the family. I assume that this is going to make it impossible for me to slice a 365 day period such that I fit the physical presence test, since I'll be going home again at Christmas. Thus if I don't pass the bona fide residence test I'm in for some serious beatdown from Uncle Sam.

I opened a small business in 2006, and will have about $8,000-10,000 worth of income from it in 2007. All of that is stateside (wonders of the Internet), and this has resulted in me, e.g., opening an additional 2 US bank accounts, opening a Roth IRA, etc etc. I also dutifully reported my 2006 income from the business, classified it as US source (it was a close call), and paid taxes on it. I will be doing the same in 2007.

Here's the $64,000 question: does the existence of this business and the associated connection to good ol' USA push me over the line for the bona fide residence test? If so, or if its on the bubble, what can I do to mitigate that?

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